March 12, 2012 5:50 pm

VW chief’s package raises the pay bar

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Compared to awards reaped by some US executives last year, Martin Winterkorn might feel short changed by the payout announced on Monday.

Still, the €17.5m in pay and bonuses awarded to Volkswagen’s chief executives for his efforts in 2011 – the most of any blue-chip German company – raises the bar for pay among European industrial companies.

VW is one of an elite band of western industrial companies that are reaping huge rewards from their broad international footprint and premium products, which is being reflected in corporate pay packets.

In contrast, payouts at some banks are being squeezed by market turbulence, regulation and political pressure over the size of bonuses. Josef Ackermann, chief executive of Deutsche Bank, was long regarded as one of Germany’s best paid Dax chief executives but was paid less than €9m in 2010 compared with €14m in 2007 before the crisis.

Mr Winterkorn deflected the comparison between automotive managers and bankers on Monday by stressing that his earnings were the results of success in the “real economy”; still the payout is uncomfortable for a company that, more than most, emphasises the importance of a harmonious relationship with workers.

Perhaps unsurprisingly it has therefore made sure to share around the rewards of success. VW workers received a €7,500 bonus last year, almost double the amount received last year. Meanwhile, VW shareholders also received a much higher dividend.

Executive pay rose to the top of the political agenda in Germany in 2009 when Wendelin Wiedeking, Porsche’s ousted chief executive, departed with a €50m pay-off but the climate is still much less inflamed than in France or the UK.

Germany’s companies have since the crisis been required by regulators to revamp pay structures for senior executives, giving managers more basic pay and adjusting bonuses to make them more dependent on longer-term performance – something which VW emphasises it has done.

According to an analysis by HKP, a consulting firm specialising in performance management and compensation, the average direct pay and bonuses for a Dax chief executives last year, based on 16 companies that have so far reported, was €5.9m, or around 11 per cent higher.

Dieter Zetsche, chief executive at Daimler, earned €8.7m in pay, bonuses and shares last year, while Peter Loescher, the chief executive of Siemens, received a similar amount.

“The 2011 financial year was for some companies among the most successful in history. This is now also being felt in performance-orientated pay. Corporate results, workers’ bonuses and executive remuneration are reaching record levels,” said Michael Kramarsch, managing partner at HKP. “The effects of past legal and regulatory changes are becoming clear. ... Success-orienated pay elements are increasingly determined by sustainability criteria.”

However, compared to other auto industry executives, Mr Winterkorn’s pay does not appear wildly excessive. According to a study by Towers Watson, the professional services firm, the average compensation for CEOs of major automakers in 2010 was $15.3m.

Ford’s Alan Mulally received $25.8m in compensation in 2010, the group said. Fiat’s Sergio Marchionne was second with total compensation worth $17.6m, followed by Renault/Nissan’s Carlos Ghosn, who received compensation at the two companies worth about $13m. Mr Winterkorn was in fourth place, earning $12.4m in 2010. Most of these companies have yet to report 2011 pay levels.

Max Warburton at Bernstein Research noted that VW pay had “sky-rocketed” but said Mr Winterkorn looked “better value” as a percentage of earnings when compared to his rivals at Renault, PSA or Fiat.

Further reporting by John Reed in London, Stanley Pignal in Brussels, Hugh Carnegy in Paris and Matt Steinglass in Amsterdam


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